Dumping the fictions and embracing real economics

The viral pandemic is opening doors to a new, reality-based economics.

A little over three weeks ago, economist Chris Richardson predicted the COVID-19 outbreak would cost the Australian economy less than $6 billion, adding that in Australia’s $2 trillion economy such an outcome would be “not too bad”.

In these extraordinary times, a few weeks is a lifetime. Last week KPMG calculated that our economy will lose at least $17 billion – nearly three times Richardson’s earlier estimate. Chances are KPMG is wrong too, by an order of magnitude.

A “downward spiral” in the Australian economy, said KPMG’s report, could gain momentum, leading to much lower consumer spending and threatening the viability of businesses. Read: bankruptcies, job losses, widespread pain and suffering. That’s apart from the disease itself.

Canberra-based Richardson has built a reputation as an astute, if somewhat conservative, observer and a competent interpreter of the complex processes by which we produce, distribute and consume goods and services.

But he is handicapped from the start by the way he and most of his colleagues continue to frame the economic debate, and by uncertainties and misgivings about his profession’s rigour, impartiality and heavy focus on paid work, and its neglect of the physical world on which all economic activity is based.

As the COVID-19 pandemic sweeps across our world, economists have been exposed for their inability to discern threats on the horizon and inherent weaknesses in national economies.

Well before the triple whammy of drought, fire and pandemic, we all knew about the gap between market and financial hype on the one hand, and on the other the harsh reality of social inequality and our growing underclass of unemployed (or under-employed), homeless and disempowered.

For three decades we have also been warned about a dangerously degraded natural environment affecting Earth’s atmosphere, oceans, waterways, forests and soils, and threatening the viability of many life forms, including humans.

Economists, financial experts and politicians talking of the state of the economy consistently ignore the environmental factor. Their failure to account for it and to give it the public attention it deserves is for me one of the most troubling aspects of modern life.

Between them, government and the commentariat like to define what’s important and what’s not in the economic and financial landscape. Their enduring neglect of the physical world has become far more pressing since the 1980s when the global “free market” began its inexorable rise.

A global free market is the most extreme form of capitalism yet devised, whereby corporations can function without the inconvenient constraints of national laws, boundaries and taxation. The richer the corporation, the greater its freedom to do what it damn well likes.

Every stage in capitalism’s progression to this extreme level has involved disempowerment, starting with us individuals and our communities. Now it threatens not just us, but also public institutions, national governments and civil life itself.

The global free market is like a viral pandemic that has so far proven impossible to contain. But containing it is of the utmost importance. Now, COVID-19 has given us an opening to do just that.

Human populations have responded poorly to a slowly growing climate crisis, but a viral pandemic is altogether different. People can quickly and strongly focus on something that directly threatens them and their loved ones. Spin and other forms of misinformation can be politically deadly.

Survival aside, the pandemic has focused attention on the needs of people and systems close to home, on the need to shorten supply chains, on using local expertise and manufacturing, whose environmental impact we can control. We are seeing on a daily basis the misfortune that can befall us when that local control is lacking.

So what to do? First we must save a functioning society by doing as medical authorities say. Then as we recover we must renounce the ludicrous fictions on which capitalist economics is based: small government, endless growth, limitless wealth and the trickle-down effect.

We must build on radical measures governments are now being forced to employ and pursue stronger corporate regulation and a root-and-branch reform of global and national economic instruments and agreements.

Money is a human construct but the coronavirus is real, as leaders now see all too clearly. We need them to take that a step further, to get a handle on the real basis of our economy: the land, sea and air which are the source of all wealth.

Last century we dabbled in triple bottom line accounting to try to integrate this reality into economic management. We must try again until we succeed. Without it, economics is pointless fantasy.